Delay Damages and Liquidated Damages in Vietnam Construction Contracts

Updated: 22 October 2026 · IVLF Advisors

A late project costs the employer revenue and financing charges every day, and the contract’s delay clause decides how much of that loss can be recovered without proof. In Vietnam, the answer is not simply the FIDIC figure in the Particular Conditions.

The treatment of liquidated damages construction contract Vietnam clauses runs through Article 86 of the Construction Law No. 135/2025/QH15, which separates contractual penalties, compensation for loss and predetermined damages, and which caps penalties at 12% for public-investment and PPP contracts only. The stakes are highest on airport, expressway and factory projects, and on resort or energy developments, where a delayed opening can mean lost tariffs, lost bookings or a breached offtake deadline.

How Vietnamese law treats delay damages and penalty clauses

Article 86(1) of the Construction Law requires rewards, penalties and compensation to be agreed in the contract. Any bonus must correspond to the level of excellent performance. This is the statutory base for every delay clause in a Vietnamese construction contract, whether it is written in Vietnamese or follows a FIDIC form.

Article 86(2) provides that compensation is calculated on actual loss, or at a predetermined amount of loss that corresponds to the obligation breached. This is the closest statutory fit for what FIDIC calls delay damages. Article 86(4) adds that if a breach is caused by a third party, the party in breach remains liable to its counterparty, so a contractor cannot escape delay damages by pointing to a late subcontractor.

For private-capital projects, the parties are free to agree the rate and structure, within the general civil law and any rule that limits penalties in commercial contracts. We do not assert a specific percentage limit for private contracts here, and parties should check whether any statutory limit on penalties applies to their contract before fixing the rate.

Penalty, compensation and predetermined damages: three different tools

The vocabulary is a frequent source of confusion for foreign parties, because a Vietnamese contract may combine the three tools in one clause. The table sets them side by side.

Concept	Vietnamese term	Function	Cap under Article 86
Contractual penalty	Phạt vi phạm	Agreed sanction for breach, payable regardless of proof of loss	12% of the value of the breached part of the contract, for public-investment and PPP contracts; private contracts follow the agreement
Compensation for actual loss	Bồi thường thiệt hại	Reimbursement of proven loss	No statutory percentage; limited by proof and the contract
Predetermined damages	Mức thiệt hại định trước	Agreed estimate of loss for a specific breach	Must correspond to the obligation breached
FIDIC delay damages (Sub-Clause 8.7)	No exact term; usually drafted as one of the above	Daily sum for late completion, with a maximum	Set by the Particular Conditions

Article 86(3) allows the parties in a public-investment or PPP contract to agree compensation for loss to the counterparty and to third parties in addition to the penalty. The penalty cap and the compensation do not cancel each other out, but a clause that stacks both for the same delay invites a challenge for double recovery. A careful draft says which tool applies to which breach.

The 12% cap for public-investment and PPP contracts

The 12% figure applies to the value of the part of the contract that was breached, not to the entire contract price. In a contract with defined milestones, this makes the definition of the breached part important. For example, in a hypothetical turnkey contract where the delayed item is the commissioning milestone, the parties should state whether that part is the value of the milestone, of the package or of the whole facility. If the contract is silent, the cap leaves room for argument in both directions.

Three further points deserve attention:

• the cap is a statutory limit for public-investment and PPP contracts, and a rate agreed above it is vulnerable;
• it limits the penalty, and compensation for loss may be agreed in addition under Article 86(3); and
• for private projects, the cap is not mandatory, though many lenders and sponsors adopt it as a benchmark for what is likely to be enforceable.

Liquidated damages construction contract Vietnam: setting the rate and the cap

Daily rate, ceiling and trigger

A defensible delay clause starts with a genuine pre-estimate of the employer’s loss. Typical components are extra financing cost, lost revenue or rental, extended supervision and site costs, and penalties owed to the employer’s own customers. Market practice is to calculate the daily rate from those components, record the calculation in the negotiation file, and cap the total at a percentage of the contract price. The reasoning matters if a tribunal is later asked to test whether the sum bears a relationship to the loss.

Liquidated damages construction contract Vietnam: choose the label deliberately

A Vietnamese counterparty may read a FIDIC delay damages clause as a penalty clause, and a court or tribunal applying Vietnamese law may apply Article 86 accordingly. If the clause is intended as predetermined compensation, say so, and say that it is the employer’s sole remedy for delay up to the cap. If the parties also want a penalty, state a separate rate, and confirm that the total of both stays within the public-investment or PPP cap where it applies.

FIDIC Sub-Clause 8.7: how delay damages work in the 1999 edition

In the FIDIC 1999 Silver Book, delay damages follow a simple structure. If the Contractor fails to comply with Sub-Clause 8.2 (Time for Completion), it pays the sum stated in the Particular Conditions for every day between the relevant Time for Completion and the date in the Taking-Over Certificate. The total cannot exceed the maximum amount, if any, stated in the Particular Conditions. Three features deserve emphasis.

• Exclusive remedy for delay. These are the only damages due for the delay, except on termination under Sub-Clause 15.2 before completion.
• No release. Paying them does not relieve the Contractor of the duty to complete or of its other obligations.
• Claim procedure. Payment is subject to Sub-Clause 2.5, which requires the Employer to give notice and particulars and then proceed under Sub-Clause 3.5, and allows deduction from money due only in accordance with that Sub-Clause.

Sub-Clause 8.6 adds a second financial consequence: if the Employer instructs a revised programme because progress is behind for reasons that do not justify an extension, the Contractor bears the cost of the expedited methods, and pays any additional cost the Employer incurs from them, in addition to delay damages.

The “exclusive remedy” wording is the point most likely to meet Vietnamese practice head-on. A Vietnamese employer may expect a penalty plus compensation, as Article 86(3) allows for public-investment and PPP contracts, while a foreign contractor and its lender price the risk on the FIDIC cap. The Particular Conditions should state the intended outcome, rather than leave the position to a later argument about characterisation.

Delay damages versus actual loss: evidence and strategy

A fixed daily sum saves the employer from proving its loss, and it also fixes the contractor’s exposure. English-law commentary on liquidated damages makes the point that the employer generally cannot recover more than the agreed sum even if its real loss is higher, and can still recover the sum if its real loss is lower.

Whether the same result follows under Vietnamese law depends on how the clause is characterised under Article 86 and on what the contract says about additional compensation. A liquidated damages construction contract Vietnam clause should therefore say expressly whether the employer may claim actual loss above the cap.

Contractors should not assume that an agreed sum can be reduced later. Whether a tribunal may reduce an agreed penalty as disproportionate depends on the applicable civil-law provisions and should not be assumed in a negotiation.

A hypothetical example

This hypothetical is for illustration only. A private-capital contract has a price of VND 1,000 billion and daily delay damages of 0.1% of the price, capped at 10%. The works are completed 150 days late, but the contractor is entitled to 30 days of extension. Delay damages run for 120 days, giving 12% of the price (VND 120 billion) on a simple multiplication, which exceeds the cap, so the contractual maximum of VND 100 billion applies.

If the same contract were a public-investment contract, the parties would also need to confirm that no penalty exceeds 12% of the value of the breached part. A liquidated damages construction contract Vietnam clause that states these rules in a worked example is easier to apply and to defend.

Conditions for recovering delay damages

An employer that deducts delay damages must be ready to defend four points.

1. The completion date is right. If an extension is due and unassessed, the date is wrong. Delay damages can only run from the date as extended; see our article on extension of time in construction contracts in Vietnam.
2. The delay is the contractor’s. Delay caused by the employer’s own acts or omissions undermines the claim. English law calls the consequence “time at large”, a doctrine that is not Vietnamese law, although a Vietnamese tribunal may reach a similar result by applying general principles of good faith and fault.
3. The notice and procedure were followed. Under FIDIC, that means Sub-Clause 2.5; under Vietnamese law, the written notice requirements in the contract.
4. The sum is within the cap. Check both the contractual maximum and, for public-investment and PPP contracts, the 12% limit.

The contractor’s mirror-image claim is for its own delay costs. Where the employer caused delay, delay damages and prolongation compensation can be two sides of the same programme analysis; we discuss recovery of the contractor’s costs in our article on prolongation costs in construction contracts in Vietnam.

Security, set-off and termination for delay

Delay damages are only as good as the employer’s ability to collect them, so any liquidated damages construction contract Vietnam deal should settle the collection route at signing. Article 83(2) of the Construction Law allows the employer to enforce the security provided, or call on a guarantor or the bank holding a deposit, where the contractor’s breach prevents it from meeting safety, quality or schedule requirements or leads it to refuse performance.

For public-investment and PPP contracts, Article 13 of Decree 210 sets the performance security at 2% to 10% of the contract price, and provides that the contractor does not recover it if it is late through its own fault and refuses to extend the security’s validity. Private contracts follow the agreement.

Prolonged delay also raises termination issues. Under Article 27(2) of Decree 210, serious breaches that justify termination include a contractor refusing to perform or failing to work for 56 consecutive days, with serious effect on the schedule, unless the parties agree otherwise. A party that wishes to terminate must normally give notice 28 days beforehand under Article 27(5), unless otherwise agreed.

Under Sub-Clause 15.2 of the FIDIC Silver Book the Employer can terminate on 14 days’ notice where the Contractor, without reasonable excuse, fails to proceed with the Works in accordance with Clause 8. Many sponsors link the delay damages cap to a termination right in the Particular Conditions (market practice), so that reaching the cap becomes a decision point.

Disputes over delay damages are commonly resolved by arbitration, and the choice of institution matters for enforcement. Article 86(5) of the Construction Law directs public-investment and PPP contracts that use arbitration to prefer domestic institutions, with international dispute-board models allowed only where required by treaty or approved by the investment decision-maker. The Vietnam International Arbitration Centre is the leading domestic institution.

Drafting checklist for a delay damages clause

• State the daily rate, the cap and the date from which delay is measured.
• Define whether the sum is a penalty, predetermined compensation or both, and whether compensation is additional.
• For public-investment and PPP contracts, define the “breached part” and confirm the total remains within 12%.
• Link the clause to the extension of time procedure and to the Taking-Over or acceptance mechanism.
• Allow for sectional or milestone damages where partial use is valuable.
• Record the pre-estimate calculation, and confirm how deductions and guarantee calls will be made.

Lenders should check that the capped delay damages (the maximum exposure the contractor will actually bear) cover debt service during the expected delay period, and that a termination right applies once the cap is reached.

Liquidated damages construction contract Vietnam across project types: infrastructure, industry, energy and real estate

The same delay clause behaves differently depending on who owns the asset and what a late opening costs. The examples are hypothetical.

Infrastructure and transport

Expressways, rail and metro stations, ports and airport terminals are often State- or SOE-owned and so often treated as public-investment or PPP projects; classification depends on the funding source and is determined project by project. Where that classification applies, the 12% cap on penalties discussed above is a mandatory ceiling rather than a negotiating point.

For very large packages, such as civil works on the planned North–South high-speed railway (about 1,541 km, Hanoi to Ho Chi Minh City, 350 km/h design speed), a fixed daily rate would normally be paired with a defined ceiling and a clear link to the extension of time process. On an airport terminal, for instance phase 1 of Long Thành International Airport (commercial operation expected from 24 December 2026 according to press reports), the opening date is commercially fixed, so the rate should reflect real exposure rather than a generic percentage.

Heavy industry and factories

Steel, petrochemical and cement plants and FDI factories are usually privately funded. Party agreement governs, and delay damages are typically tied to production start and performance tests. Lenders often want delay damages to cover interest during construction, and a separate performance-shortfall regime for output.

Renewable energy and power

For solar, onshore and offshore wind and gas-to-power projects, lost revenue is often measured against a power purchase deadline. Whether the regime is public or private depends on ownership and offtake structure and is fact-specific; check the electricity-law framework. Many sponsors seek a rate that tracks lost tariff income, plus a long-stop date.

Real estate: resorts, hotels, urban areas and mixed-use

Hotels, resorts, urban areas and mixed-use complexes are generally private. The dominant loss is delayed opening or delayed sale handover. The legal regime for housing and real estate sales is separate, so the contractor’s delay damages should be set with reference to buyer-side exposure, but not assume it passes through automatically.

Sector	Typical delay-damages feature	What to check
Expressway, rail, airport terminal	Fixed opening date; State owner	Whether 12% cap applies; ceiling and rate
Factory, steel, cement	Production-start link; lender cover	Penalty vs predetermined damages label
Solar, wind, gas-to-power	Offtake deadline, lost tariff	Rate vs real loss; long-stop date
Resort, hotel, mixed-use	Opening and buyer handover	Pass-through of buyer claims; set-off

Conclusion

Delay damages work when the rate is reasoned, the characterisation is clear and the approvals and notices are in place. Before signing, compare your delay clause against Article 86 of the Construction Law, decide whether the 12% cap is mandatory for your project, and align the clause with the extension of time and termination provisions.

Frequently Asked Questions

Is there a statutory cap on penalties in Vietnamese construction contracts?

For public-investment and PPP contracts, the penalty cannot exceed 12% of the value of the breached part. For private contracts, the parties agree the penalty, within general law.

Can the employer claim penalty and compensation together?

For public-investment and PPP contracts, Article 86(3) allows compensation in addition to the penalty if the contract so agrees. Draft the clause to avoid double recovery.

Are FIDIC delay damages enforceable in Vietnam?

A clause agreed as predetermined damages corresponding to the breach fits Article 86(2). Its characterisation and any applicable cap should be confirmed for your contract.

Does an extension of time stop delay damages?

Yes. Delay damages run only from the Time for Completion as extended, so an unresolved extension claim weakens any deduction.

Can the employer deduct delay damages from payments?

Under FIDIC Sub-Clause 2.5, deduction follows notice, particulars and determination. Under Vietnamese law, follow the contract’s payment and set-off terms.

Disclaimer: This article provides general information only and is not legal advice for any specific matter. It reflects Vietnamese law as of 22 October 2026. Please obtain advice on your own facts before acting.